Highlights of the 2017 Revisions to the AIA-A201

construction contractFor almost 130 years, the American Association of Architects (AIA) has published form construction documents. The AIA family of documents is among the most popular and commonly used form construction documents in the construction industry. The last time that AIA issued major changes to the contract family of documents was 2007. Historically, AIA has issued revisions to their standard form contracts every 10 years. Consistent with its custom, AIA recently released revisions to 11 different forms and plans to release revisions to additional forms in the fall of 2017.

This article focuses on the changes to the AIA-A201. The AIA-A201 is the general conditions form that is used in conjunction with certain other contract forms, such as the AIA-A101 “Standard Form of Agreement Between an Owner and Contractor Where the Basis of Payment is a Stipulated Sum.” Most of the changes are relatively minor clarifications or improvements. For instance, the revised AIA-A201 now defines the term “Separate Contractor(s).” AIA also added provisions that some may consider boilerplate, such as the addition of a “survival” clause. But, AIA also made substantive changes, some of which are discussed below:

  • The most significant change to the AIA-A201 is the creation of an insurance and bonds exhibit. In the 2007 version, the insurance and bond requirements were primarily set forth in the agreement itself. Now, the majority of the insurance and bond terms are included in an exhibit, which must be read in conjunction with the remaining insurance terms in Section 11 of the agreement. The new AIA insurance exhibit allows for much greater flexibility in choosing insurance coverage and permits the parties to tailor their insurance coverage to the specific needs of their project. For instance, the exhibit distinguishes between insurance coverages that are required (such as workers’ compensation or automobile liability insurance) versus optional (such as asbestos liability or loss of use insurance). The AIA-A201 also makes some modifications to general insurance terms, such as establishing specific owner liability to contractor for the owner’s failure to procure insurance and requiring waivers of subrogation under insurance policies separate from those policies insuring the project.
  • In a response to the financial crisis that followed the issuance of the 2007 edition, AIA developed more comprehensive language regarding the owner’s duty to provide the contractor with information concerning its ability to pay. For instance, the revised AIA-A201 creates a detailed procedure outlining when a contractor can refuse to proceed with the work, or even suspend work in certain instances, if the owner does not provide timely information concerning its financial arrangements. The form does, however, require the contractor to keep the owner’s financial information confidential.
  • Recognizing recent changes in communication, AIA now allows for notices to be sent through “electronic transmission” where provided. It is important to note, however, that notice of “Claims” must still be sent by personal delivery, certified/registered mail, or courier. This suggests that a notice of a “Claim” deserves greater attention than other more routine notices throughout the contract performance period.
  • AIA now requires all warranties be issued in the name of the owner or transferrable to the owner. Considering that contractors generally install equipment or use materials manufactured or provided by other parties, this requirement simplifies the warranty process. The revised AIA-A201 also clarifies that some of the contractor’s warranty obligations occurring before substantial completion are different from its obligations occurring after substantial completion.
  • In instances where an owner has terminated a contractor for convenience, AIA has substituted the owner’s obligation to reimburse contractor “for reasonable overhead and profit on the work not executed” with terms requiring the owner to pay “costs attributable to termination of subcontracts” and a “termination fee.”
  • There is a new timing mechanism that appears to bar a party’s ability to file a claim in arbitration or litigation. Specifically, after the initial decision and mediation, either party may demand that the other party file its claim in either arbitration or litigation. If the other party does not file a claim within 60 days of the demand, then both parties waive their rights to arbitration or litigation with respect to the initial decision. The revised AIA form also provides additional clarification about the role of the initial decision maker.
  • The 2017 revisions specify, in greater detail, the information to be included in schedule submittals, including specification of the schedule milestone dates and an apportionment of the work by construction activity.
  • Contractors are now explicitly required to submit releases and waivers of liens along with their applications for progress payment. In addition, a new provision has been inserted to require contractors to indemnify the owner from all damages it suffers as a result of a lien or claim filed by a subcontractor where the owner has fully complied with its payment obligations.
  • The change order provision has been revised to outline the contractor’s rights when it disagrees upon whether a proposed change is a “minor change” (or a change that does not affect the contract sum or contract time). Specifically, if the contractor is asked to perform a “minor change” but the contractor believes that such change will affect the contract sum or contract time, the contractor can now refuse to perform the proposed change until the matter is resolved or a change directive is issued.
  • The document requires greater use of Building Information Modeling (BIM) and digital data. In fact, by default, the parties are required to use an AIA BIM and digital data exhibit to establish the protocols for the development, use, transmission, and exchange of digital data.
  • The revised AIA-A201 form also allows for more direct communication between owner and contractor, as opposed to communicating through the architect.

The list above is not a comprehensive list of the changes to the AIA-A201; rather, it is intended to set forth some “highlights.” Anyone attempting to use the new 2017 form should carefully compare the entire 2017 form with the 2007 form. The AIA publishes a helpful comparison of the two documents on its website.

In future blog posts, we will analyze some of the changes to the other form agreements between owner and contractor that were recently revised by the AIA, including AIA-A101 (where basis of payment is a stipulated sum), AIA-A102 (where basis of payment is cost of the work plus a fee with a GMP), and AIA-A103 (where basis of payment is cost of the work plus a fee without a GMP). Please check back to this blog for those updates.

In the meantime, if you have any other questions about the recent AIA revisions or drafting a contract for your particular project, please do not hesitate to contact us.

Buy American and Hire American: What It Means for the Construction Industry

USA construction siteOn April 18, 2017, President Donald Trump signed into law the “Buy American and Hire American” Executive Order (No. 13788). The Order requires agencies to do a wholesale evaluation of their compliance with “Buy American” laws and to develop additional policies and procedures to maximize the use of American materials and manufactured products.  As part of this review, the Order also instructs agencies to limit their use of waivers under “Buy American” laws going forward.  The Order also includes instructions to various relevant departments to step up enforcement of H-1B visas requirements to prevent fraud and abuse, protect the interests of American workers, and ensure that H-1B visas are awarded to the most-skilled or highest-paid laborers (Note: Increased H-1B enforcement should not significantly impact the construction industry, which does not appear, at present, to rely heavily on immigrant workers who meet the H-1B qualifications, but the move is in line with other steps by the administration to tighten immigration controls that may worsen the ongoing labor shortage in the industry.).

The Executive Order is as broad as it is vague, so, at this stage, it is somewhat difficult to predict how it will shape federal construction projects in the future.  All laws which require or provide a preference for the purchase of goods, products, or materials produced in the United States are subject to a review, and the Order requires agencies to complete the assessment of their “Buy American” practices within 150 days with a report to be submitted to the President 70 days after that, which will include recommendations on how to strengthen implementation of “Buy American” laws.  Given the breadth of laws subject to wholesale review, these agencies have a challenging task ahead of them.  If the Order’s timeline holds up, the President will likely receive a report sometime in November of this year, and you can likely expect additional actions once that report is received and evaluated.

In the long term, the more heightened enforcement of “Buy American” provisions likely means increased costs of procuring materials domestically and heightened risk of material shortages on federal projects.  Higher costs and potential shortages may tempt more fraud and abuse on federal procurement and construction projects.  In this setting, contractors should be cautious as even inadvertent procurement of falsely certified “Buy American” materials may have severe implications under the False Claims Act and could result in suspension, debarment, and penalties.   For contractors who operate overseas, you may also anticipate reactionary legislation or laws from countries you do business in as those countries seek to protect their national economic interests.  Additionally, when bidding future federal work, contractors may not be able to rely on past practices with respect to the granting of waivers, as the Order instructs agencies to be more judicious in the use of waivers of “Buy American” requirements.

Revisions to ConsensusDocs® Design-Bid-Build Standard Forms

Business contract detailsEvery construction project has a contract (written, preferably), and they often vary in size and scope depending on the nature and complexity of a project. Many construction industry participants have developed their own contract forms, and others rely on industry standard contract forms such as the AIA and ConsensusDocs standard forms. ConsensusDocs forms evolved from the prior AGC forms.

Recently, the ConsensusDocs Coalition published revisions to its prime and subcontractor Design-Bid-Build standard contracts. Many of the changes are attempts to clarify provisions, create consistency across forms and are generally editorial in nature. However, several of the revisions have a substantive impact and should be reviewed closely prior to using the new forms. Below is a high-level overview of some of the substantive changes:

  • Termination for Convenience: Improper terminations for default/cause are no longer automatically converted into terminations for convenience. Accordingly, an improper default termination may result in substantial damages.
  • Schedule of Work: Incorporates Critical Path Method Scheduling concepts and specifically requires the identification of critical dates and a graphic representation of all activities, including float values that will affect the critical path.
  • Indemnification: Expanded to include “intentionally wrongful” acts or omissions and also provides some clarity to the definition of “Others” who or which are indemnified.
  • Insurance: Contractor, rather than the owner, is now the default party responsible for obtaining the builder’s risk insurance policy. The party who procures the builder’s risk insurance policy bears the risk of loss from damage to the work until Final Completion.
  • Bonds: No longer requires that the bond penal sum increase automatically in accordance with the contract price when the price increase exceeds 10 percent.
  • Changes and Directives: Revisions clarify and account for changes with no time or cost impact and expand changes to encompass “Interim Directives.”
  • Payment: Adds an additional category of “losses, expenses, or damages … not compensated by insurance” and “cost of corrective work” as recoverable costs on a cost reimbursable basis.
  • Dispute Resolution: Adds a “check-the-box” option for the mediation procedures and administrator. If no box is selected, mediation will be conducted pursuant to the American Arbitration Association rules.
  • Fiduciary Relationship: Removed language from the ConsensusDocs 240 Design Professional Standard Agreement that may imply that a fiduciary duty existed between the owner and its design professional.

These revisions affect numerous ConsensusDocs standard agreements, including: ConsensusDocs 200 Owner & Constructor Agreement, ConsensusDocs 205 Owner & Constructor Short Form Agreement, ConsensusDocs 240 Owner & Design Professional Agreement, ConsensusDocs 750 Constructor & Subcontractor Agreement and ConsensusDocs 751 Constructor & Subcontractor Short Form Agreement. Although this blog focuses on changes to the Design-Bid-Build forms, revisions to other ConsensusDocs forms including the Design-Build and construction management at-risk forms (ConsensusDocs 410; 415; 420; 450; 560 and 500) were released in March 2017 and address changes in the industry impacting insurance, legal, technology and terminology.

Disputes often arise because a party is unfamiliar with its contract. This blog should serve as a reminder to review each contract you are presented with; update any forms you may have for use in your company; read your contract (we hope before you sign it); and, if you have questions, consult with a seasoned construction lawyer to increase the likelihood that your project is governed according to what you think you bargained for.

Solar in the Frost: What to Watch Out For

solar panels

As solar technology continues to become more efficient, construction of solar plants is expanding rapidly around the world, including in colder environments that, in the past, may have lacked the irradiance necessary to make solar feasible.  Installation of solar panels north of the frost line creates some additional risks that solar developers, owners and contractors should consider. We have recapped some of those concerns below.

  • Who carries the subsurface risk and what does that risk extend to?
    • Post-driving in northern climates requires attention to the “heave,” or the impact of frost expansion of soils during winter months on the driven piles that support the panels. Frost expansion can cause uplift and sinking of piles that create serious warranty issues after a plant is operational, and, because the cause of the warranty issue occurs underground, it may be difficult to ascertain or assign responsibility after-the-fact.  Parties can and should work together to define and assign this risk during contract negotiations to avoid unnecessary and potentially expensive disputes during a project and after completion.
  • Who is responsible for weather impacts and how will weather delays be addressed?
    • In many construction contracts, the notice to proceed date is left to the discretion of the owner/developer once the contract price and scope have been negotiated. Contractors and subcontractors should be wary of an open-ended NTP date or any kind of protracted negotiation after the award of a bid in regions that suffer from early-onset, harsh and lengthy winters.
    • Solar contractors, in particular, focus on creating efficiencies and managing a compressed schedule to make the work profitable. The manufacturing-like process of solar farm construction demands that contractors maintain a high level of productivity to achieve project goals.  If a contractor allows owner-financing or material availability concerns to push its NTP date into late summer or fall in a colder climate, the contractor may be vulnerable to winter weather impacts that could cripple its productivity, spelling disaster for a project.
    • For example, frost penetration can make malleable soil take on rock-like qualities and seriously hamper pile-driving operations. Similarly, installation of racking and panels in sub-freezing temperature may require additional equipment/materials to keep laborers warm and may require more skilled or expensive labor to work productively in such harsh environments.  Even where construction is completed before winter sets in, a contractor should consider potential impacts weather may have on testing requirements.  For instance, a contractor may have difficulty demonstrating required performance standards if panels are covered with snow for prolonged periods.
    • To account for winter weather impacts, a savvy contractor will look for additional protection beyond the standard force majeure language that may appear in many contract forms. Force majeure provisions do not always cover weather impacts that are ordinary or expected for a particular climate even if such conditions are typically harsh or difficult.  Instead, a contractor should look for additional protection by addressing winter weather impacts and delays separately and clearly assigning responsibility for associated costs to the appropriate party.
    • The contractor, to the extent it will rely on subcontractors for any of the work, must clearly understand what that entity believes is “winter work,” before agreeing to definitions or relief with the owner/developer.

There are obviously other considerations that solar industry participants should evaluate when pursuing work in cold weather climates.  But the above examples may encourage you to think more deliberately about the various unforeseen issues that might arise.  And, indeed, regardless of where you are pursuing new work, it is always a valuable exercise to consider potential environmental impacts, especially in a marketplace with a fast-expanding footprint like solar energy.

Bradley Partner David Pugh Appointed Chair of Bylaws and Policies for National ABC

David PughBradley’s Construction Practice Group is pleased to announce that David Pugh was appointed Chair of the Bylaws and Policies Committee for the National Associated Builders and Contractors at the ABC Workforce Conference 2017. As a member of the firm’s Construction team, Mr. Pugh represents owners, general contractors, subcontractors, engineers, architects, insurance companies and sureties throughout the United States at every stage of a construction project, from conception and planning to performance and closeout. He also serves as the 2017 Chair of the ABC Alabama Chapter Executive Committee.

The ABC Workforce Conference 2017 was held this past week in Ft. Lauderdale, Florida, and featured innovations in construction field applications, educational content, cutting-edge product demonstrations and a celebration of the best in merit shop construction. The annual conference also recognizes the dedication and contributions of ABC members, chapters and craft professionals to the construction industry.

New FAR Rule Requires Self-Reporting of Reduced or Untimely Payments to Subcontractors

Bradley attorneys Aron Beezley and Emily Unnasch recently published a Law360 Expert Analysis article on the new changes to the Federal Acquisition Regulation (FAR) that impose mandatory reporting requirements on federal prime contractors who fail to make full and timely payments to their small business subcontractors. Although little more than a month old, these new requirements already have been the source of considerable confusion for both federal prime contractors and small business subcontractors. Accordingly, the article aims to provide a user-friendly overview of the new requirements, and concludes by offering context and analysis from the perspective of both federal prime contractors and small business subcontractors.

The Expert Analysis article was published by Law360 on February 23, 2017. If you have any questions about any of the topics discussed in the article, please do not hesitate to contact Aron Beezley or Emily Unnasch.

The Most Important Government Contract Disputes Cases of 2016: A Feature Comment Authored By Beth Ferrell and Aron Beezley

Bradley attorneys Beth Ferrell and Aron Beezley recently published in The Government Contractor a Feature Comment on the most important government contract disputes cases of 2016. The Feature Comment analyzes the U.S. Court of Appeals for the Federal Circuit’s decisions in Kellogg Brown & Root Servs., Inc. v. Murphy, 823 F.3d 622 (Fed. Cir. 2016) and Laguna Constr. Co., Inc. v Carter, 828 F.3d 1364 (Fed. Cir. 2016), and provides insights on how these two decisions impact the assertion of claims and resolution of government contract disputes.

The Feature Comment appeared in The Government Contractor on February 8, 2017. If you have any questions about any of the topics discussed in the Feature Comment, please do not hesitate to contact Beth Ferrell or Aron Beezley.

Riding Currents into New Markets: What Power Generation Developers and Contractors Should Watch Out For

Electricity Generation Plants Images SetThe CPV St. Charles Energy Center, a new 725 MW combined-cycle gas power plant in Maryland, went online earlier this month. The U.S. Supreme Court analyzed federal preemption with respect to state regulation of power generation in interstate markets administered under the Federal Energy Regulatory Commission (FERC) in a ruling affecting the CPV plant’s rate structure. As the Court recounted, Maryland attempted to evade the “clearing price” set by the interstate market for power by ordering local power utilities to enter into a 20-year “contract for differences” with CPV for capacity generated by the new gas power plant. Under the terms prescribed by Maryland, if the clearing price set by the interstate market was less than the rate under the contract for differences, the power utilities would make up the difference, and, if the reverse were true, CPV would owe the power utilities for the difference.

Maryland’s aim was to encourage and subsidize local production of clean and renewable sources of electrical power generation, but the Court found that Maryland’s efforts at price fixing in the interstate market were preempted by the existing regulation of that market by FERC. However, the Court also left open the door for future efforts by states to incentivize local electrical production so long as such efforts avoided interference in interstate markets:

We reject Maryland’s program only because it disregards an interstate wholesale rate required by FERC. We therefore need not and do not address the permissibility of various other measures States might employ to encourage development of new or clean generation, including tax incentives, land grants, direct subsidies, construction of state-owned generation facilities, or re-regulation of the energy sector. Nothing in this opinion should be read to foreclose Maryland and other States from encouraging production of new or clean generation through measures “untethered to a generator’s wholesale market participation.” … So long as a State does not condition payment of funds on capacity clearing the auction, the State’s program would not suffer from the fatal defect that renders Maryland’s program unacceptable.

President Trump has promised to “identify and eliminate unnecessary regulations that kill jobs and bloat government” and to allow states more freedom from federal restrictions, although it is too early to determine if he will encourage renewables, in light of his promise to lift restrictions on coal, oil, natural gas, and shale. While FERC is unlikely to be affected, states will likely seek ways to persuade developers and contractors to the state’s backyard. As more states pursue markets for renewable and other forms of electrical generation, they are likely to implement incentive programs to try to attract developers and contractors to produce capacity locally.  Power generation developers and contractors must consider the potential enforceability of any regulatory or rate-setting scheme that is used to entice them into a new market. If a state overreaches in the development of its incentive program and a court strikes the program down after a project is under way, that action might substantially impact the profitability and viability of any power plant.

$1 Billion in Credit Assistance Now Available from EPA’s New Water Infrastructure Program

water treatmentOn January 10, 2017, the U.S. Environmental Protection Agency (EPA) announced the availability of $1 billion in credit assistance for water infrastructure projects under the new Water Infrastructure Finance and Innovation Act (WIFIA) program. See 82 Fed. Reg. 2933 (Jan. 10, 2017).  Congress enacted WIFIA in order to provide low-cost, long-term credit assistance through direct loans or loan guarantees. The program supplements other traditional forms of water infrastructure financing such as State Revolving Fund (SRF) programs and bonds.

Entities interested in applying for WIFIA funding must act fast. In order to be considered in the current round of funding, prospective borrowers must submit formal letters of interest to EPA no later than April 10, 2017. EPA will host informational webinars explaining the process of submitting and evaluating letters of interest on February 9 and March 7, 2017.

WIFIA Overview

  • Eligible Borrowers
    • Local, state, tribal, and federal government entities and instrumentalities
    • Partnerships and joint ventures
    • Corporations and trusts
    • State infrastructure financing authorities
  • Eligible Projects
    • Wastewater conveyance and treatment
    • Drinking water treatment and distribution
    • Enhanced energy efficiency projects at drinking water and wastewater facilities
    • Brackish or seawater desalination, aquifer recharge, alternative water supply, and water recycling
    • Drought prevention, reduction, or mitigation
    • Acquisition of property if it is integral to the project or will mitigate the environmental impact of a project
    • A combination of projects secured by a common security pledge or submitted under one application by an SRF program
  • Key Program Features
    • $20 million – Minimum project size for large communities
    • $5 million – Minimum project size for small communities (population of 25,000 or less); WIFIA requires EPA to set aside 15 percent of its budget authority for small communities.
    • 49 percent – Maximum portion of eligible project costs that WIFIA can fund
    • Total federal assistance may not exceed 80 percent of a project’s eligible costs
    • 35 years – Maximum final maturity date from substantial completion
    • Five years – Maximum time that repayment may be deferred after substantial completion of the project
    • Interest rate will be equal to or greater than the U.S. Treasury rate of a similar maturity at the date of closing
    • Projects must be creditworthy and have a dedicated source of revenue

Letters of Interest and Applications for Funding

Prospective borrowers must first submit a letter of interest to EPA by April 10, 2017. The primary purpose of the letter of interest is to: (i) validate the eligibility of the prospective borrower and the prospective project; (ii) perform a preliminary creditworthiness assessment; (iii) perform a preliminary engineering feasibility assessment; and (iv) evaluate the project against the selection criteria and identify which projects EPA will invite to submit applications.

EPA will invite selected prospective borrowers to submit an application based on preliminary engineering feasibility findings, a preliminary creditworthiness assessment, the amount of budget authority necessary to provide credit assistance, and the scoring of the eligibility criteria. EPA expects that it “will only invite projects to apply if it anticipates that those projects are able to obtain WIFIA credit assistance.”

Eligibility Criteria

EPA has identified the following project priorities, in addition to geographic and project diversity:

  • Adaptation to extreme weather and climate change including enhanced infrastructure resiliency, water recycling and reuse, and managed aquifer recovery;
  • Enhanced energy efficiency of treatment works, public water systems, and conveyance systems, including innovative, energy-efficient nutrient treatment;
  • Green infrastructure; and
  • Repair, rehabilitation, and replacement of infrastructure and conveyance systems.

Within the priorities, selection criteria (and relative weight) for this round of funding include:

  • National or regional significance with respect to the generation of economic and public health benefits – 10 percent
  • The likelihood that WIFIA assistance would enable the project to proceed at an earlier date than without – 5 percent
  • Use of new or innovative approaches (energy-efficient parts and systems, renewable or alternate sources of energy, green infrastructure and alternate sources of drinking water through desalination, aquifer recharge or water recycling) – 10 percent
  • Protection against extreme weather events, such as floods or hurricanes, as well as the impacts of climate change – 10 percent
  • Maintenance or protection of the environment or public health – 10 percent
  • Service of regions with significant energy exploration, development, or production areas – 5 percent
  • Service of regions with significant water resource challenges, including water quality concerns, significant flood risk, issues identified in existing regional, state, or multistate agreements, and water resources with exceptional recreational value or ecological importance – 10 percent
  • Responds to identified municipal, state, or regional priorities – 5 percent
  • Readiness of the project to proceed toward development, including a reasonable expectation that the construction of the project can commence no later than 90 days after the date on which a federal credit instrument is obligated – 5 percent
  • Inclusion of public or private financing in addition to assistance under WIFIA – 5 percent
  • Reduction of other federal assistance to the project – 5 percent
  • The needs for repair, rehabilitation, or replacement of a treatment works, community water system, or aging water distribution or wastewater collection system – 10 percent
  • Service to economically stressed communities, or pockets of economically stressed rate payers within otherwise non-stressed communities – 10 percent

Conclusion

Letters of interest must be submitted no later than April 10, 2017. Prospective borrowers should take action immediately to evaluate their potential WIFIA eligibility and to begin preparing a letter of interest. Developers, designers, program managers, and contractors may want to help identify eligible cities and projects.

 

Bart Kempf is a member of Bradley’s environmental and government relations teams.

Government Contractors a Continued DOJ Target for False Claims Act Enforcement in 2016

Government contract concept on missing puzzleThe federal government continues to use the False Claims Act (FCA) as one of its prime enforcement tools against banks and mortgage companies. As it does each year, Bradley has assembled an overview of the year’s major False Claims Act developments and opinions to keep you abreast of the status of law. You may find our 2016 Year in Review here.

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